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Among the many telecom services I use is Verizon FIOS. I was checking rates today and discovered that unless a Verizon landline customer purchases an international calling plan they will pay $3.41/minute on any international calls!

Is gouging the unsuspecting, uninformed, or desperate consumer really a good business practice for a large, regulated, or brand-name franchise?

With the iPad 2, as with the original iPad, Apple is continuing to charge an absurd $130 premium for models equipped to access 3G cellular networks. Even worse: You have to pick between Verizon and AT&T when you buy your iPad, since their wireless data networks are incompatible. It’s pretty sad to spend over $600 for a tablet computer that is then locked into a single data provider on an aging 3G standard.

Smart consumers are foregoing the 3G option on iPads and instead investing in portable internet access points, which can then serve not only their iPad but also other Wi-Fi enabled phones and computers in the vicinity. This preserves freedom to upgrade to faster 4G networks in the future and to switch service providers without having to buy another iPad.

For example, you can buy a MiFi mobile hotspot for the same price as the iPad 3G option and then get unlimited data access from Virgin Mobile, without a contract, for $50/month — for up to 5 Wi-Fi devices.

I wanted to do some significant regrading of my lot. I calculated I would need about 700 cubic yards of additional earth to achieve my desired landscape. But going out and contracting for a company to haul and spread that amount of dirt would have run into the five figures.

Not only did I not have the budget for that, but I know that there are a lot of construction projects where contractors are paying sites to take dirt that they excavate. If you put out the word and wait long enough eventually you can make a mutually beneficial connection. One contractor pointed me to the information-age solution: DirtFill.com, an exchange where people trying to get rid of dirt can find others looking to take it.

I put a listing up there two months ago. Last week I got a call from a contractor who had done major excavations on a project just a few miles from me. I drove out to look at the dirt and found mounds of beautiful, clean fill. Their foreman followed me back to my site to look at the feasibility of disposing it. Two days later they drove a John Deere 410E into my back yard to spread and level the dirt as two tri-axles ran back and forth all day for the next three days.

My only expense was tipping the tractor operator to rip up some stumps and grade it just the way I wanted it. It was a win for them too because the next closest places for dumping were not only at least twice as far but were also charging to take fill.

Since I think the residential real estate market is bottoming out, and my family will soon need more space anyway, I recently began shopping for houses. Based on my reference post on this subject it won’t surprise people to learn that I have a low opinion of the real estate marketing cartel (a.k.a. “Realtors”).

Following my own advice I did not enlist a “buyer’s agent.” Instead I did my own searches through listings and, when I wanted to see a house, I contacted the seller’s agent directly and drove myself to the appointment.

Overall my experience with these “Realtors” continues to be dismal. Of the dozen or so licensed listing agents with whom I have interacted in the last few weeks at best only three struck me as professional and ethical. Many were incompetent, lacking basic knowledge of the houses they were contractually and ethically obligated to sell. Some were more interested in selling themselves to me than in selling the particular property they listed and in which I had expressed interest. And of course many, on learning I wasn’t being “represented” as a buyer, tried to convince me that I should let them be my “buyer’s agent.” After all, they explained, their “services” as my representative wouldn’t cost me a penny.

This argument, by licensed professionals, is not only unethical but should also be illegal: Traditional buyer’s agents are not free. They collect a substantial fee from the sellers of any house purchased by their client — usually 2.5%-3.5% of the selling price. This is known as a “co-op commission.” On a $1MM house a buyer’s agent expects to walk away with about $30k. As I asked some of these Realtors, “What could you possibly do as my representative that would be worth $30k?” It became a rhetorical question.

At best they run the same computer searches I do and contact the same listing agents I do. If I didn’t have a car I could probably get the listing agents to drive me to their showings. In fact, I consider it detrimental to have a house shown by someone other than the owner or listing agent. After all, a buyer’s agent typically doesn’t know any more about the house than I do from reading the listing, requesting copies of the floor plan, or walking through it. At least when the listing agent is showing it there is a presumption that they have studied the property and are prepared to answer questions that might be asked by a buyer. And when they don’t know the answer (as happens ridiculously often) at least I’m one person closer to the answer.

As I mentioned in my previous post, a buyer’s agent doesn’t even fully represent the interests of the buyer. I want to find a house that most closely matches my objectives at the best possible price. A buyer’s agent wants me to buy a house with as little work on their part as possible. Their interest is in getting me to make a purchase producing the biggest buyer’s co-op, so not only would they prefer I pay as much as possible, but they would also prefer I didn’t see houses with reduced commissions.

So there are already plenty of principled reasons to avoid buyer agents. But the money is the biggest: When I submit an offer on a house and make it clear that I am waiving the “buyer co-op,” it’s like adding 3% to my bid. Some Realtors may quibble that they contract with sellers for a fixed commission rate, and if the buyer doesn’t present a licensed agent to claim it then they get to keep the full commission for themselves. Hopefully neither sellers nor courts will countenance such an anticompetitive gambit. Though if push comes to shove, I can confirm that there is no shortage of licensed Realtors eager to list my old house. It won’t be hard to find one who will agree to be my buyer’s representative at settlement and refund their commission to me.

[Update: How to access MLS if you’re not a Realtor. Several comments note that only Realtors have access to the MLS, and without that you can’t effectively do your own searches. The reality is that you can get full access to listings with one more step: In addition to trulia.com and homefinder.com, most real estate agency web sites allow you to run searches against the entire MLS. None of them reliably come back with the complete MLS listing, but they will tell you which agency has the listing. I have found that if you then go to that agency’s web site and search for the property they will provide the complete listing information, including contact info for the listing agent and often other details.]

Peek is a no-frills wireless device that lets you send and receive unlimited Email anywhere you are in range of T-Mobile’s cellular network. It interfaces with every major webmail service. The service requires no contract and costs only $20/month. The device, which comes with one free month of service, lists for only $100 but is regularly available from Costco.com for $80, and is currently shipping for $70.

I constructed a room for a walk-in closet, but a walk-in closet is just a room until it has been packed with custom hardware to accommodate the orderly storage of everything one wants to keep in it.

I looked at seven alternatives for furnishing the closet (see Competitors below). Early on I ruled out wire shelving as inferior to solid shelving. Since I was willing to install the hardware myself I couldn’t justify the expense of using full-service California Closets or Closets-By-Design — even after taking advantage of their substantial room to negotiate down from their list prices (it appears that they have a nearly 40% margin to play with). I had one corner to include in the design where I didn’t want to lose any space. Most of the competitors made some tradeoff between using that corner efficiently and keeping it accessible.

In the end I went with EasyClosets.com. I started on their website by requesting a professional design. I provided the room’s measurements and general descriptions of what I wanted the layout to look like and accommodate. A day later a designer had a custom design done which I was able to inspect and tweak myself with their web application. For the difficult corner he had specified radiused corner shelves (which can’t be done with their online app), and he put shallow drawers and shelves on each side to maintain easy access. Using their web app I further tuned the height of vertical panels to ensure that some odd wall receptacles remained accessible. When I was finished I had him check it over one more time. He promptly reconciled a few of my measurements and took my order.

The closet arrived five days later, consisting of 550 pounds of hardware packed in 17 clearly marked boxes. It was no more difficult to assemble than any other laminated wood furniture I’ve done. Everything starts with a horizontal metal track that gets anchored to the walls six inches below the top of the shelf panels. As long as this track is secure and level (which is easy to ensure with a good laser level) everything else falls into place. Granted, that is followed by a whole lot of screwing — cam pins, drawer rails, drawer faces…. A few of the parts I received were damaged, but one quick phone call to their hotline had replacements in my hands two days later. Here’s a picture of the finished closet.

Important note: Costco gives members extra savings and free hardware upgrades at EasyClosets.com, so either access their site from Costco.com or else ask them to apply the Costco concessions for free. (If they won’t, it’s worth the $50 to join Costco, and you can cancel your membership for a full refund later.)

Competitors

California Closets, also a Costco affiliate, offers on-site design and installation, but seems to be the most expensive service.

Closets by Design offers on-site design and installation that seems to run a little cheaper, though be prepared for a harder sell.

Ikea has several closet systems, though it can take some serious research to figure out exactly what fits with what. I considered their Pax system. Since I am within driving distance of one of their stores it would have been a little cheaper than EasyClosets. But I decided against Ikea not only because their corner solution wasted some space, but also because everything has to be built around their modular frames, which push the closet almost two feet out from the wall. If you want to put doors on everything this is essential, but I wanted a more open walk-in closet.

The Container Store’s Elfa system might have been competitive while on sale, but their designers couldn’t find a reasonable solution for my corner. Non-sale prices are too high.

Closetmaid and Rubbermaid have the advantage of selling components in every Home Depot and Lowes, but their solid shelving systems apparently offer the least versatility and even though they claim to offer design assistance I was never able to get a response from inquiries.

Only buy guaranteed-renewable term life insurance from A-rated insurer. “Whole life” insurance, which accrues value over time, combines savings and investment with insurance. I have heard of no good reason to bundle those activities. But there are good reasons to avoid whole-life insurance, including:

The insurer can embed higher fees.

You expose yourself to credit risk of the insurer. If the insurer fails then you could potentially lose the value of savings in your whole-life policy. In contrast, if a term-life insurer fails you have only lost your most recent premium payment. (Either way you are at risk of not being able to get a new policy in time.)

The purpose of life insurance is to protect those who depend on you being alive against catastrophic consequences of you not being alive. Therefore, it never makes sense to insure child who does not produce income on which you depend. It is not necessary to insure a homemaker if you can fall back on extended family in the event of their death for the essential services they provide.

As with all insurance, you pay a premium for protection (insurers generally make profits after paying claims and business overhead), so it is irrational to load up on more insurance than you need — unless you know that you are at a much higher risk of dying than actuaries think you are.

How much insurance is reasonable? If a young family depends on your income, and you have no savings, then you should probably get enough insurance that your wife and kids could maintain their standard of living for 20 years (or until the children are independent) from the proceeds of a policy. A healthy young man can get a 10-year guaranteed-renewable $2MM insurance policy for around $600/year. After 10 years, hopefully he will have saved some money and his dependents will be closer to independence so he could drop his coverage to $1MM.

You should not buy insurance to provide independent heirs with an inheritance. If you play your cards correctly you should Die Broke. Older people should eventually be able to self-insure out of their savings. Once they have no dependents they should eventually plan to purchase an immediate annuity to provide insurance against outliving their own savings.

Last time I bought a term-life policy I found the best contract through Zander Insurance Group, an independent insurance brokerage company that made the process as easy as it has ever been.

Online hosting is a crowded market. For over four years I have used 1and1.com and have found their services to be competent, reliable, and very competitively priced. There are probably other players out there that are just as good, but with so many questionable businesses in the mix it’s hard to be sure.

I cringe every time I hear of somebody paying $35/year for domain name registration when they can get full-service registration with privacy on an ongoing basis at 1and1.com for $7/year. Nobody should buy web services before comparing with 1and1.com.

Paying for delivery of fresh flowers is a woefully expensive gesture, especially considering what you could send instead for $50-$100. I have yet to find a woman who wouldn’t rather receive a SpaFinder.com certificate in the same amount. Pick one up at Costco and you can get her a $100 credit for only $80.

Real estate brokerage in America is a terrible industry. A naive consumer intending to buy or sell his house will probably sign a long contract with a state-licensed broker (a.k.a. “Realtor”) that traditionally involves forfeiting up to 3% of the transaction value in exchange for questionable services. Before you even talk to a real estate broker, please consider the following:

Buyers

As a buyer, you will be encouraged to sign a contract enlisting a “buyer’s agent” to help you find a house. In spite of all the industry obfuscation to the contrary, “Buyer Agents” do not work for the buyer. Their incentive is to close a sale with as little work on their part as possible, and with a seller who will give them as high a commission as possible. Hence, as a buyer working with a broker you must keep in mind the following perils:

They do not have an incentive to show you the best house for your needs. Rather, their incentive is to show you a smaller set of houses you are likely to buy that pay the largest possible commission to them. This means they will typically show you full-commission houses listed for sale with them or their coworkers. Then they will show you full-commission houses listed elsewhere. They may show you cut-rate commission houses. It is very unlikely they will show you “FSBO’s” or other homes with low or zero commissions, or that would require a lot more effort on their part to close.

They do not have an incentive to help you negotiate the best price on the house you want. Their only incentive is to help you close a sale with as little effort on their part as possible. If you buy a house, it doesn’t matter what they do or don’t do: they get paid the same rate. (In fact, it may be small but technically their incentive is to have you pay as much as possible, since 3% of a higher prices is still a little more.)

Agents may proclaim that they are licensed and that they have a fiduciary duty to their clients. However, in practice this fiduciary duty guarantees you absolutely nothing. So what service does a buyer’s agent actually provide?

MLS searches. They will also ask you for your search criteria and will print out listings that meet those (and their) criteria. However, you can now do this yourself on the internet (and can circumvent their filters on low-commission houses). Thus, value to you of this service: Zero.

Local expertise. They will be familiar with the communities in your search area. But no more so than anyone else. If you are moving somewhere new you will probably know people at the new place you are going to work, study, or recreate. Ask them instead.

Market expertise. Skip it: When you’re buying they always tell you it’s a very tight market and you have to bid high and close fast. When you’re selling they always tell you it’s a soft market so you should be eager to accept the first low offer that comes along.

Referrals. They will refer you to home inspectors, appraisers, title insurers, and any other service provider you may want. There is no guarantee that these referrals are based on quality instead of kick-backs or other conflicting interests. Value to you: Zero.

Chauffeur service. They will setup appointments to view homes and they will drive you to them. However, you could just as easily make an appointment directly with the listing agent and drive yourself.

Nevertheless, even if you don’t value the chauffeur and appointment services, it still pays to enlist buyer agents if only because most sellers offer them a commission. And most of that commission should go into your pocket. Did you know that it is standard practice in the real estate industry for brokers to give 40% of their commission on any sale to a referring agency? This is why there are so many banks and other services out there offering rebates if you work with a broker to whom they refer you. If you take no other advice from this article, you should at least demand up front that your broker share 40% of their final commission with you.

As a buyer, how can you avoid getting ripped off by a real estate broker?

Do not commit to work with only one agent. Every broker will ask you to sign a contract in which you commit to giving them the buyer’s agent commission on any house you buy within a given period. This is absurd – and unnecessary. The industry is suffering a glut of brokers hungry for your business. Visit multiple brokers and tell them you will pay them if you buy a house that they show you. Working with multiple agents can mitigate many of the risks and hazards on the buyer’s side.

Negotiate a share of the commission for yourself. Since the standard referral rate is 40%, make it clear that you expect to receive at least 40% of any commission. Negotiate your share upward based on the amount of work they actually do to help you find and buy a house. (Note that in a traditional sale of a $2MM house they will walk away with a $60k commission. What’s a fair wage for driving you to a few houses and sitting at your side during the closing?) Note that in 12 states commission “rebates” are illegal. So in those states don’t call it a rebate; call it a subcontracting fee, partnership share, or something else.

Align the incentives. If you aren’t doing your own legwork in the MLS and FSBO sites to find houses you want to look at, then ensure that your broker has an incentive to show you houses that pay low or no commissions. For example, offer to pay them an hourly rate in lieu of commission for their work. Or offer to pay them a minimum “commission” if the seller of a house you end up buying does not.

Sellers

People who want to sell a house are in a less flexible position than buyers. It is practically impossible to list your house for sale with more than one agent. (It is possible to list it with no agents, but even today that all but guarantees that 95% of potential buyers will never see your listing.) Furthermore, unless you offer buyer agents a 2-3% commission then many potential buyers will never be shown your property (due to the buyer agent conflicts of interest noted earlier).

Compounding the situation of the seller is the fact that a good seller’s agent will invest a significant amount of time and money marketing the house. This results in better visibility and, statistically, a higher selling price. Agents deserve to be compensated for this work (if they do it). But there are still many bad agents who will make you sign a contract for them to list your house – often for 6 or more months – and then do nothing to market it. And why not? Even if they don’t do anything there’s a chance someone will offer to buy it during that period, at which point they get their full commission.

Seller agents face most of the same perverse incentives as buyer agents: Namely, they would rather close a deal with less work on their part than with more. Though they get a higher commission from a higher sale price, they are only seeing at most 3% of the upside. Suppose you’re selling a $1MM house. How much harder do you think your agent will work to get you $1.1MM if at most $3k of that extra $100k ends up in their pocket?

As a seller, how can you avoid getting ripped off by a real estate broker?

Do not sign a long-term listing contract. An agent might invest significant time and money marketing your house. They deserve to be compensated for that. However, I know top-rated agents who offer listing contracts with a 15-day opt-out. I.e., no matter what they have invested to sell a listed property, the seller can choose to opt out of their contract with 15 days notice. A good agent should offer a contract like this, since if they are doing a good job you have no incentive to take your business elsewhere. An alternative contract would allow you to opt-out if you pay their sunk costs. I.e., if you want to take your listing elsewhere make them hand you receipts and time-logs of what they have invested, pay them for their work at a pre-agreed rate, and move on.

Negotiate a share of the commission for yourself. Remember the 40% referral rate and use that as a starting point. You could even insist that the listing be free of any seller’s commission, and instead offer them a fixed fee, or a time-and-materials contract, perhaps with a performance bonus based on how much the selling price exceeds a fair appraisal.

Do offer a full 2-3% commission to the buyer agent. Unfortunately, due to the buyer agent hazards there is a good probability that if you don’t offer this incentive you will have fewer lookers, fewer bids, and ultimately a lower selling price. However, this is not necessarily unfair: If your buyers are savvy (as suggested above) then they will be pocketing a large part of the buyer agent’s commission. In essence, you can look at the buyer’s commission as a built-in discount to the selling price. I.e., if your property sells for $1MM with a 3% buyer commission then everyone involved knows that the buyer is really only paying about $970k. (Of course, this isn’t optimal since taxes and fees are typically a function of the selling price. Ideally everyone would agree on the sale and then just reduce the price by 3%. But this is the best we can do in the present conditions.)

The market is overflowing with real estate brokers. Some are very good. Many are just out there playing the lottery – hoping to pick up a listing or a buyer on a big sale and walk away with a single commission that they could live on for an entire year. The good agents will not mind contracting with you on terms like those outlined here.